Earnings preview: What to tune for Tencent Music Q1

Tencent Music Entertainment Group (TME) gears up for the first quarter 2019 earnings on Monday after the market closes. This is the second quarterly report after the much-hyped debut in the US stock market. The market analysts expect the Chinese digital music market to have massive growth potential and the company could turn beneficial from this.

The results will be benefited by the double-digit growth in the number of paying users across the online and social entertainment services. The company remained beneficial from music streaming, online karaoke, and live streaming services that were offered through QQ Music, Kugou Music, and Kuwo Music.

Analysts expect Tencent Music Entertainment to report earnings of $0.10 per share on revenue of $855.26 million for the first quarter. The company’s fourth quarter 2018 results came in line with the analysts’ expectations. It is expected to post upbeat results for the first quarter. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $18.06 per share in the next 52 weeks.

Tencent Music is the music streaming section of Chinese tech giant Tencent Holding, which has struggled badly in the past year as the Chinese initial public offerings have not performed well in 2018. However, the financial numbers of Tencent Holding appeared to be extremely solid and there remained plenty of room for growth.

In December 2018, Tencent Music started trading on the New York Stock Exchange following a $1.1 billion IPO, which is dubbed as the fourth largest by a Chinese firm. The US-China trade war has ruined the debut that came after a long delay.

The company will be benefited by the number of monthly active users (MAU), which was around 800 million during the fourth quarter of 2018. The results of Tencent Music will be driven by strong growth across its business lines, including both online music and social entertainment services.

Also read: Amazon Q1 earnings report

For the fourth quarter, Tencent Music reported better-than-expected adjusted earnings as the double-digit growth in the number of paying users drove revenue higher by 50.5%. Revenues from online music services jumped 45% while paid music revenue climbed 38%.

During the fourth quarter, the number of mobile MAU for the online music service advanced 6.8% year-over-year to 644 million, while the mobile MAU for social entertainment moved up 9.1% to 228 million. While the mobile average revenue per paying user (ARPPU) for the social entertainment segment rose sharply by 24.3%, online music mobile ARPPU dropped 1.1%.

Swedish music entertainment platform and rival Spotify (SPOT) last month reported a narrower loss in the first quarter of 2019, supported by a 33% revenue growth as well as lower costs and expenses. As a streaming platform for music, Tencent Music has been frequently compared to Spotify or Apple (AAPL) Music or Amazon (AMZN) Music.

Shares of Tencent Music has risen over 18% since the IPO and over 12% in the past three months.

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